Swing pricing and fragility in open-end mutual funds
File(s)
Published version
Author(s)
Jin, Dunhong
Kacperczyk, Marcin T
Kahraman, Bige
Suntheim, Felix
Type
Journal Article
Abstract
How can fragility be averted in open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor-level transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces outflows during market stress. Swing pricing also reduces concavity in the flow-performance relationship and dilution in fund performance.
Date Issued
2022-01-01
Date Acceptance
2021-01-05
Citation
The Review of Financial Studies, 2022, 35 (1), pp.1-50
ISSN
0893-9454
Publisher
Oxford University Press (OUP)
Start Page
1
End Page
50
Journal / Book Title
The Review of Financial Studies
Volume
35
Issue
1
Copyright Statement
© The Author(s) 2021. Published by Oxford University Press.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
License URL
Subjects
Social Sciences
Business, Finance
Economics
Business & Economics
INVESTOR FLOWS
FIRE SALES
BANK RUNS
PERFORMANCE
LIQUIDITY
MODEL
1401 Economic Theory
1402 Applied Economics
1502 Banking, Finance and Investment
Finance
Publication Status
Published
Date Publish Online
2021-03-08